What is Housing Allowance
Understanding Housing Allowance for ministers
The housing allowance provision allows a minister who is ordained, licensed, or commissioned to receive a portion of their compensation that is excluded from gross income and not subject to federal income tax. The provision recognizes that a minister often uses their home as part of their regular duties.
The minister receiving the housing allowance must determine their eligibility, understand the limits and follow the rules. Ministers must keep records to substantiate the amount they include when calculating housing expenses. Eligible expenses include mortgage payments (principal and interest); rent payments; real estate taxes; property insurance; utilities (gas, electricity, water, sewer, garbage pickup, local telephone service); appliances and furniture (purchase or rental cost and repairs); remodeling expenses; homeowners’ dues; and pest control. The housing allowance may not exceed the lesser of 100% of compensation or actual housing expenses.
A housing allowance must be board-approved and designated in writing by the organization before the beginning of the calendar year. It cannot be designated retroactively, meaning it must be established before the minister earns the income on which the organization designates the housing allowance.